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Your risk level is low with a 15k house. However .. both the chances of an ongoing tenancy or demand for ownership are low.
There are places where you can purchase land for 15k-20k. The long term prospects for these properties and even these regions is usually highly questionable for all sorts of reasons. So it may sound cheap .. but it remains a very high risk investment as the possibilities of the property .. the land .. or the whole township losing total value are very real.
Think it cant happen? Look up GHOST TOWNS of Australia .. and see how many town just stopped existing when their use was negated. Sure for some of the tenants of the town .. they just decided to stay there until they got old .. but most just left. And the town stops existing .. and the markers get bulldozed … it DOES happen. Not so much in the last 50 years but it still happens.
Regardless of what it will cost you .. overbudget rather than exact to budget.
Misery happens when your cup runneth over. And after doing it on so many development sites, no matter how well you budget you'll have a cost blowout of some sort. Leave yourself some room or you'll end up finding yourself with your back up against the wall financially and selling into a downward spiralling market.
Within a period of the first five years of a buildings creation .. there is a reasonable exchange of units. There is usually a brief exchange of up to 30% of the building within the first two years as people who got in for certain reasons realise they cannot manage or support the loan they thought they could handle. Or they find that the investment is taking a little longer than it should for doing anything for them.
Thats the rapid exchange .. thats actually quite a normal procedure in most new buildings.
However .. in Docklands .. there are a heap of poorly built .. badly managed .. rentals and semi-owner occupiers that really arent attractive to anyone once the initial purchase has been propertly assessed. At the moment the big movements in a lot of the buildings is the fact that student vacancies and student share has eliminated a good 20% of all existing tenancies in these complexes. And the owners corporation contributions can be quite high.
Stand back and do a proper assessment of the property as a genuine investment. There may be a series of genuine reasons why people are leaving.
Just as in the up times … people flock to property and property forums …
In the down times .. or percieved down times .. people stay away from what they see as a liability.
Does it make sense? no? …
I didnt write the book on human behavioral science.
Lucigoosey,
House and Contents insurance should be what you are looking for. Make sure you go through the property and take into consideration what the place could lose and what it would realisticly cost to replace it. I had my H&C Insurance pegged at 8k replacement for a couple of years on one property until i realised i had about 20k worth of kitchen and bathroom fittings to lose on.
Your Body Corporation/ Owners corporation should be covering the common areas. Make sure they are .. and that payments are kept up to date.
I personally believe we are well beyond the bottom of the market and heading towards upward movement.
Do I need to present proof? Absolutely.
The number of properties headed to market for the spring season is still nice and steady.
The interest rate is at a level which makes the ratio of borrowed money vs return quite acceptable for a lot of properties. It also means that with some reduced prices .. some properties minus the 20% deposit can actually return slightly cash positive without being in a fancy location or a great position. Thats not only healthy .. that suggests the start of a new pricing re-evaluation.
Yes .. that means an upward movement.
The limiting factors on this seem to be that for the moment .. rental demand is on hold with no pressure. That could mean a while before rent rises or increases in rental returns are possible. Capping the future potential of any current IP strategy.
There are lots of writeups as to why student apartments are a bad invest. The real reasons are pretty simple.
Banks wont treat them with respect.
Since banks wont borrow on them (easily) or lend against them (easily), you've got an investment that is hard to sell .. and you will be hard placed to find a buyer for it. Hard to sell, Hard to borrow against? Since when is that a good investment?
Tenancies are intermittant and irregular
You have a singular group of people you can rent these properties out to. I mean .. if you were told by the body corporate you were only allowed to rent to bikers or nuns .. wouldnt you be looking elsewhere for your investment property? And yet when its students, who are only involved with a course for a year or two at maximum .. thats ok???
For the same specific reason .. aged or elderly care places (55+) fall into this basket.
Management fees and re-letting fees cancel out the difference in profit.
Most of these places have a management or body corporate that takes care of the place. It can range from as low as a couple of hundred dollars to a thousand or two … depending on facilities. This eats into the margin you have for making a profit.
Combine that with intermittent tenancies with a letting fee for every time new tenants are installed .. the margin you have over and above a standard property for making money is curtailed significantly.
Fashion and Trend.
To keep reselling these places to the market .. the developers keep adding more gadgets and gizmos into these places to add perceived value. Once your place has been rented for a couple of years .. there are new and more fashionable and trendy and competitive premises competing for your student dollar.
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These are the reasons that most people find as problems for treating these places as investments. Like most properties .. the problems CAN be solved. But the times when they are .. are rare with these.
Treat with caution and investigate wisely.
The reason the lawyer steps in on special conditions or the Real Estate Institute provides a guideline for the clause is because a special conditions clause becomes a binding part of the contract and its fulfilment.
If a poorly written entry allows for the purchaser to have an indefinite period of time for the special condition .. then they can exercise that special provision and the seller is helpless against it. Thats why the clauses must be thorough and specific, because being too vague they can be open to misrepresentation and conjecture.
Thats really where the difference between a conveyancer and a solicitor comes in (Vic only). The conveyancer is fine should all parties be agreeable and there not be any special conditions. Trip outside that .. and the need for a solicitor to pass things smoothly is required.
I'm a mentor for free to people who have genuine questions. I will not ever specify specific areas to invest in .. or specific types of property to invest in .. on an as per needs basis. I am there to educate people to making better property decisions.
I dont give all my experience .. but i can give sound guidance and reasonable tips for those who are seriously looking at doing things in real estate.
Every person's circumstance will be slightly different from anothers. Since you have a tax issue coming up with moving back to another country .. you should seriously explore your options with this.
There are all sorts of variables that come into a property purchase and should always be considered when purchasing a property. And each person's requirements for the purchase will be different. Since you will play absent landlord on a property if overseas .. you will need a fantastic property manager OR a friend who oversees property maintenance. Or .. a low maintenance property.
I think you are thinking too much with a linear perspective rather than thinking outside the box.
You've got a property with previous connections to being a gas station. THAT is a problem. Without knowing precisely the US laws on the situation .. i'm pretty sure they come to similar to ours in Australia .. that you clean up the site and all ground contamination.
So .. for him .. and currently for you .. its a dud. But why not think what it CAN be? So you cant be doing residential at 100% and thats understandable. But why not mixed-use? A shop down the bottom and maybe a couple of offices up the top? You've stated a couple of times in the article that its a great position. So why not spruce it up to what it CAN be instead of crying about what it can't be?
From my perspective you've got a gold mine and you dont even know it. You are buying a property at a reduced level because you have to deal with ground contamination .. but you are getting a great site ! So start thinking about what you can be doing with it.
My last petrol station site is now used as a multi-level storage site. Its a rental place for people who have stuff they'd prefer not to keep in garages and still need that kind of space. Its a different use but its highly profitable and its well used again .. BECAUSE it was a petrol station in a good position.
Its what you can do with it .. and you need to stop looking at what really is a singular negative .. and explore the real options you can do with this site. I doubt with residential restrictions you'd get mixed use (residential and commercial) granted .. but who knows? unless you try to dream the project KNOWING the current objections .. you may be missing out on your moment.
Find out whats needed in the area as far as requirements go .. commit to your area research. At 40k my perspective is you could even hold it for a couple of years paying taxes on it (i know it smells loss making) and wait for a developer with big pockets to come through. There is a time and a price at which everything is worthwhile. The question for you is how much extra time .. money and marketing are you prepared to spend to achieve a satisfactory result for your back pocket.
In a position where you dont have too much to risk by extending yourself a little .. go ahead and buy as much property as you can for your buck. If you are more worried about a significant drop in property prices .. head out to a situation where there is less of a risk. As you are earning and could do with the tax benefits that can be established from having an investment property you should take full advantage of that.
In the current market there are still positively geared properties to take advantage of .. and deals that can be made that are worthwhile. My last seventeen purchases all start with a return over the 7.2% mark and surprisingly .. 6 are in the metropolitan area. People keep saying .. what about the capital growth? Make no mistake .. i want my capital growth. But I also want my investments to pay for themselves and pay well. If the properties dont meet my stringent criteria .. then they dont get chosen.
There are too many people who think investor wealth is all about buying a property and hoping that when you come back to it in 6-8 years you can at least get your money back. Its not .. its about recognising that your property meets a social requirement that someone will pay money for .. that the area remains in demand .. and the property is worth having as an asset in later years. Yes .. thats right .. property is still an active investment.
If you are looking to swap and trade property .. now is not the best time to do that .. simply because the buyers have put their purchasing on hold. It is however a great time to do the bits that usually take time to do .. like renovating .. or painting .. or passing permits through council. Its also a good time to pickup the ones that are great value.
Hi Bullet46 .. kudos to you for putting your foot forward in the search for new ideas !!
Personally I dont like either of your current options … and I will endeavour to explain why as we go through.
bullet46 wrote:Option 1 (perhaps the better optiuon as its her thought): We buy a block of land and then build another house which would end us up with a mortgage of around $250,000. We then investment in an investment property however it would be in Toowoomba so we would be negative gearing by $80-$100 p/wk (as told by our accountant or better yet his spread sheed).This is very much the old classic .. buy a house with land .. build on the back .. and we'll all make money approach. Nice .. cheap and affordable. But building a house takes time and money and involves dealing with 'reputable' builders. Expect at least a year or two before you see anything happen on a deal like this.
bullet46 wrote:Option 2 (my idea): We sacrifice living in another brand new home and we buy a place worth around $200,000-$210,000. We take out a loan for the balance ($75000) and run it over two years. We keep a tennant in the property for the first 6 months to help us pay back the loan. After the 6 month period is up we move into the house as we have over stayed our welcome with the inlaws. 2 Years time from now we own our first property and buy an investment property using a principle and interest loan with an offset account. Obviously we place tennants into the IP and then service the short fall on the loan as well as build up a nest egg into the offset account. Give it 12 months and then using equity or cash deposit, buy a second IP and repeat the cycle.I do understand the satisfaction from a mental perspective of owning your home outright. However at your age there really is no need to get either excited or chase that prospect. At your age you should be chasing a wealth building strategy which leads you to getting a better house and a better lifestyle.
Now for my complaint on your current strategies. Both are what you would call SLOW COOKED solutions. They'll come good .. and both of them will. But you are relying on two major components .. a steady increment .. and both your jobs being consistant. Slow Cooked property solutions DO work over time .. but they are time wasting and they sap all your financial freedom in the meantime while you service the loans.
Since you seem to have the parents on your backs already .. I would suggest dividing your base into an existing IP and a house. You'll be putting more into the deal initially, but long term you'll have the money you borrow on the house as PPOR capital .. the tax deductions from the IP property to offset against your income (people forget how handy that is) the rents from the IP to be added to your income assessment for your next loan and two separate bundles of equity to borrow against for any new investment strategies. You want to build at the back? Buy a house with a land component as your PPOR. Do it later .. with the money you'll keep from your new IP.
The only difference between my suggestion and yours is the time factor. With mine you get the house .. and an IP working for you from day one. With Option 1 you gotta build a house at the back to make anything (9 months to a year before you see ANYTHING) The other option … Option 2 gives you a property you've paid off … and the real question is .. WHY? You make money from other people's money stretching your capabilities .. and why not get that whole deal working HARD for you?
Need to explore tax deductions on an Investment property? Go talk to a good tax accountant .. he'll know what you can and cant claim. Why pay more to the taxman than you need to?
Thats my current assessment of your situation. The other thing that works for you is time. And at 24 you've still got lots of it. But dont waste it on poor strategies and incoherant solutions.
I dont have to understand it .. but as far as i'm aware and my contacts extend .. the Latrobe Valley is dead .. ASIDE from Traralgon. Something has gone right in Traralgon that isnt happening in the rest of the Valley.
Things are moving along there in leaps and bounds. I think its largely to do with the fact they now provide cheap commercial areas to do business. When its too cheap not to take advantage of .. people rush in.
However .. on the same note .. properties in the area take a longer time to sell .. at this stage .. and there is not enough steady demand at this stage to call it a well trading market. This is what really needs to change for your long term wealth strategy.
There is now consistant rental demand for new and refurbished mid-size units in Traralgon thanks to the new white collar business taking place in the area. As this situation improves over the next decade .. the demand for your properties can only increase.
The property you have shown has the right gear inside for matching Investor and Rental demand. As to outward appearance and Buyer demand .. the build is very cheap in appearance. If you are looking for a long term easy resale as well as a good rental return .. make sure you are getting something that will appeal to a purchaser as well as an investor.
Or .. just improve the outward appearance.
Unfortunately your accountant is right.
You've got a wide selection of properties all with a reasonable appreciation and however .. a large valuation as well. This means really that anything you purchase will be additional to the current assessment and therefore increase your land tax burden.
Its not an unusual problem to have. The only thing i can think of is to accept the fact you'll be paying the land tax based on the current level of properties you have .. factor the increase in land tax into any future equations you wish to purchase and .. live with it.
The real thing is the fact that all the properties exist under a single set of names for ownership. As there is no real benefit in paying to shuttle properties across to trusts, what you are left with is utilising what seems like a large growth of equity to fund future purchases in a better structure. Thats possible. And if your parents are earning reasonably well they should be looking at some format of tax minimisation through property anyway. Even with a larger property base.
The only real way you can minimise on land tax is to purchase structures with a low taxable base land value .. such as a multi-division .. like a unit complex. Site value is then divided by the number of properties on the land .. significantly lowering your assesable land value. Again .. its also accumulative .. so multiples will eventually promote you to a higher land tax bracket. But it starts from a lower base .. so it just takes longer to happen.
I also cant see why you are getting nervous about CGT. If you have to pay it .. you pay it. You'll be entitled to the 50% deduction for holding over a year .. and if you only sell one item a year .. you can offset that against existing expenses .. or deductions to minimise your tax burden.
Sum it up nicely .. the only way to avoid land tax is to distribute it, the only way to avoid CGT is to offset it. And for future efforts you should always assess where the property will be going to start with. If purchased under a holding company you give yourself more flexibility on ownership but you lose on the advantages you have by purchasing as sole owner as you catapult yourself into the company rates of tax which are higher.
rusty05 wrote:Hi guys,
Xdrew can I ask how you structure a portfolio of that size? Apologies if it's a no-go zone. I understand that there's no one size fits all regarding trusts, company, individual names etc but i'm interested in how larger portfolios are achieved.Regards,
RustyAs you might understand I would prefer not to discuss company structures and methods in an open forum. I might be good friends with the ATO today .. but with an open forum i wont take any chances either.
It also remains pertinent to realise what your mix of demand is.
In a high load area with lots of jobs .. lots of transient workers … you'll find a strong steady demand for units and studios.
In an area where there arent many units and lots of land .. the demand for houses will be stronger.
In an area where land is now pricey and there is convenient transport, units will be more in demand.
In an area where hospitality and tourism remain major drawcards .. both unit/house prices will suffer in the low demand/ off season.
And the important thing to realise is that as the area changes .. so does the demand on certain types of properties over other types. This is why a demographics search is so necessary when working out your best decisions.
You moderate your goals .. you attain your goals.
Then you reset your goals and aim for the next attainable level.
Then you reach that .. and try again.
How you reach your goals is the creative part. And at each level it becomes just a little easier.
Timing is everything.
Anything i'm purchasing at the moment involves improvement and re-evaluation.
I've got a substantial portfolio … returning after expenses and debt repayments over several properties .. in several states …
…. around the 530k mark. Thats a good amount .. but as you might guess .. to avoid a hefty tax burden that gets reinvested every six or seven months into new projects which chew up my income into new investment targets.
My goal was always to buy a shopping centre (or more) within 10 years of structured investing. I'm about 3 years short of that target .. and the propositions on the market look good.
Having watched Nathan Birch .. he's doing what i would have done if I'd been 10 years younger and knew what to do at the time. The only thing that I would have to change from that for a 30+ investor is that you buy smarter .. buy with an intended 1yr turnover (tax reasons). You've got less time to work with the property and you need to build your bank. Do it smart and you cant go wrong.
People are saying hold back on proposed targets now .. I'm again in the same position I was in March 2009 .. sitting there saying there has NEVER BEEN A BETTER TIME TO BUY. Why? Because the whole sideshow going on overseas WILL affect local markets .. but in inflationary pressures. They are already visible and are already being felt. Inflationary pressures push up ALL pricings and markets. And make any loans you did get look pitiful .. quickly.
Buy good property at under market (tick for that engelo10). Buy neglected .. buy poorly presented .. buy debtor sales .. buy bank sales or fire sales. There is no point in buying a pretty property that has both NO upside .. and no potential for extension or improvement. Think of that next time someone offers you an 'off the plan' proposition.
Buy with the prospect of understanding where your tenancies will most likely be coming from and where the risk components lie with your purchase. Keep an update on your suburb either with online local papers .. or by getting your agent to deliver you a copy of the local paper. I do both.
Just from word of mouth and travelling around the banks in recent days … banks are being VERY competitive with trying to get loans through now .. and are being a little more flexible on how they get their deals through. Thats a great step for you and me .. the property investors. They are there for your deals. Present them properly and make money.
Thats how you do it.
By the way Paulie .. if you are earning 100k net on 3 million .. thats a return on your investment of a little over 3% for spending. And if you are using it to spend on yourself … your portfolio is dipping in value yearly and losing against inflation barring capital gains. Even if you buy in a winning area .. thats not a safe or constructive long term strategy. Thats how to turn 3 million back into pennies. On any portfolio you should be looking at a minimum of 5% NET to produce enough return to fund your projects .. pay your expenses and pocket some change. Not getting that? Then your money is working against you and not for you.
And for bumkins .. unless you are 50+ .. you shouldnt be looking for passivity in your investment strategy. You should be keeping your money active .. your asset portfolio active .. you should be hiring GOOD property managers to do the <moderator: delete language> work for you and you should be moving your money at a regular and steady pace. Anyone who at 30 seeks a passive portfolio .. no matter how big it remains is asking for time to slow his money down. Thats why you need to keep your money active.
Mouthful to read.
I'll leave it at that.
I think the most important thing i can add to the conversation on this .. is know your market before you head into it.
It can be five days research .. or five years depending on how much you need to know. But do the research .. and you can establish the market demands .. and thats where you will make your money. Because if no-one wants your property .. no-one will buy it.
If you think its hard out there to borrow money .. chances are you are right.
But then its also a great time to be advertising for better returns than the banks. I found myself short for a couple of properties in 2008 when the banks werent lending to almost anyone and the money supply dried up. So i posted an ad in the paper for getting a better than bank level of interest on your money, and i got 5 people who were willing to accept my deal. I only needed one of them. But the funny thing is .. using the fact i had more people wanting to lend than properties i actually had .. i made a couple of stitched up deals BASED on the fact they wanted to lend me money ! HOW AWESOME IS THAT?
You got to stop thinking of the bank as the only honest broker in town. Money is money. Creditworthiness will carry you far. And using your head to make your deals will carry you even further.
By the way .. my credit cards were used to pay the stamp duty in transfers. Thats for anyone who bags credit cards as a means of having money. All deals were refinanced through banks in late 2009 (so was credit cards). So they are with banks and the banks are happy, and i got the loans i wanted. Funny how the worm turns.
